Macro-economic Models: How to Spend Uganda's Expected Oil Revenues? A CGE Analysis of the Agricultural and Poverty Impacts of Spending Options

With the recent discovery of crude oil reserves along the Albertine Rift, Uganda is set to establish itself as an oil producer in the coming decade. Depending on the exact production levels, the extraction period, the future oil price, and revenue sharing agreements with oil producers, the Ugandan government is set to earn revenue equal to 10–15 percent of GDP at peak production. The discovery of crude oil therefore has the potential to provide significant stimulus to the Ugandan economy and address its development objectives. However, this is subject to careful management of oil revenues to avoid the potential pitfall of a sudden influx of foreign exchange. With the aid of a recursive-dynamic computable general equilibrium (CGE) model this study evaluates the economic implications of the future oil boom in Uganda. We also consider various options open to the Ugandan government for saving, spending, or investing forecasted oil revenues with the aim of promoting economic development and reducing poverty, but also countering possible Dutch Disease effects. We find that generally urban sectors and households will be better able to capture rents generated by the oil revenues leading to growing rural–urban and regional inequality.